95% Of Sebi-penalised Advisers Offer Trading Calls: Study
An analysis conducted by the Association of Registered Investment Advisers (Aria) on the enforcement orders issued by the Securities and Exchange Board of India (Sebi) in the capital market reveals a significant trend.
A striking 95 per cent of these regulatory actions are directed at investment advisers, both individuals and firms, primarily engaged in providing trading recommendations. In contrast, a mere 5 per cent of the enforcement orders are related to advisers offering comprehensive financial advice. Aria contends that this data underscores the need for a relaxation of the stringent regulations that many investment advisers blame for impeding the growth of registered investment advisers (Ria) in India.
Sebi introduced its Investment Advisers regulations in 2013, subsequently updating them in 2020 following extensive consultations. Since then, Sebi has consistently taken punitive measures against violators.
A detailed examination of 78 significant orders issued by the regulator against investment advisers from the inception of these regulations in January 2013 until 14 June 2023, reveals that 74 of these orders were directed at unregistered entities, while 22 targeted registered ones.
A substantial proportion of these orders was related to those offering trading recommendations to their clients. The issue was more prevalent among unregistered investment advisers, with nearly all of them being caught providing trading advice.
Currently, there exists no official definition for an investment adviser providing trading recommendations. To simplify matters, ARIA defined a trading call provider as someone who offers guidance on non-delivery trades, equity intraday trading, derivatives, leveraged trading, and similar speculative activities. In essence, a trading call provider focuses on short-term, speculative trading rather than long-term financial investments and goal-based financial planning.
A deeper analysis of the 78 Sebi orders reveals that the majority of violators, accounting for 51 per cent, were based in Madhya Pradesh. Additionally, 32 orders were issued against individuals or entities located in Indore.
